Pain—Revisited

At the beginning of 2008, in a post entitled, Pain, I quoted Robert Samuelson on the welfare state:

The big lie of campaign 2008 -- so far -- is that the presidential candidates, Democratic and Republican, will take care of our children. Listening to these politicians, you might think they will. Doing well by children has now passed Motherhood and Apple Pie as an idol that all candidates must worship.

"We will do whatever it takes to make America a better country, to give our kids a better future," says Mike Huckabee, winner of the Republican Iowa caucuses.

"We will deliver for our children, our grandchildren and our great-grandchildren," claims Sen. Barack Obama, the Democratic winner.

"We're going to reclaim the future for our children," says Democratic Sen. Hillary Clinton.

Then I added:

Yet it appears that as government entitlements grow, we’ll have a future in which there will be fewer and fewer dollars available to improve public services and national infrastructure. In fact, the young will be required to transfer their wealth (via taxes) to the old. And for those of you who are class warriors a la John Edwards, there simply aren’t enough “rich” people and "big corporations" to tax to make up the difference.

Seven years later, nothing has changed, and the Big Intrusive Government (B.I.G.) programs championed by the sitting president have made matters far worse. Even more troubling, my concerns about the solvency of the social security system (voiced in dozens of posts over the years) have not been addressed by either the GOP or the Dems. Even worse than that, it looks like the hard left (as exemplified by Elizabeth Warren and her supporters) have decided that entitlement reform is not going to happen and instead, we should increase social security payouts to keep seniors mollified.

Megan McArdle comments:

It is a truth universally acknowledged that Americans are underprepared for retirement. And given this sad fact, there's a growing movement on the left saying we need a government solution, stat: specifically, an expansion of Social Security benefits.

Perhaps you are confused. Weren't we just talking about entitlement reform so that we could spend less on the program? Why, yes, we were. But since no one, left or right, really wants to take on our vast army of retirees, that chatter has died down. Now that it has, progressives who are ideologically opposed to shrinking the welfare state and are, of course, worried about retirees have decided that the best defense is a good offense, as Jamelle Bouie chronicles in Slate. Instead of reluctantly agreeing to a compromise where Republicans let some taxes rise and Democrats agree to entitlement cuts, they're demanding bigger tax hikes to fund bigger entitlements.

At the core of their argument is a good point: Americans really do need more money for retirement. Missing, however, is a realistic discussion of where that money might come from.

And it's a lot of money. The OASI Trust Fund (the portion of Social Security that covers old-age benefits) already pays out more in benefits than it collects in tax income. In 2014, the Social Security Trustees expect the system to collect $643.9 billion in payroll taxes and spend $716.4 billion on benefits and administrative overhead. If you add in the taxes collected on Social Security benefits, you get $671.9 billion in total tax revenue, which leaves a $44.5 billion deficit between outflow and inflow. Under its middle-of-the-road "intermediate" assumptions, the trustees' report predicts that by 2023, the gap between taxes collected and benefits paid will be almost $170 billion. The only reason that the system isn't in the red already is the net interest the government is paying itself on the bonds in the trust fund.

That's bad enough, but in the leftist's fantasy world of unlimited "government" money, why not increase social security payouts? In fact, if you listen to Elizabeth Warren (and probably Hillary Clinton, once she realizes that she must court the left-wing base of her party), all we really need to do is tax the "rich."

McArdle addresses this issue:

So where is the money going to come from, for our once and future Social Security program? The unhelpfully vague answer is generally "the rich." Some specific numbers would be useful here, and thankfully, some folks from the Third Way have actually provided some.

Let’s say the top income tax rate was raised a whopping 10 points, to 49.6 percent -- a level higher than anything under serious consideration. Tack on the “Buffett rule,” with its 30 percent minimum tax on millionaires to squash loopholes. And let’s take a whack at wealthy inheritances, cutting the estate tax exemption by about one-third and setting the rate on large estates at 45 percent.

If we leave entitlements be, our annual budget deficit in 2030 would still be $1.3 trillion in today’s dollars, not much different from the $1.6 trillion deficit we’d have if income tax rates for the wealthy were kept the same. Sure, raising some additional taxes on the wealthy is necessary, but it is not nearly sufficient.

Another favorite is eliminating the cap on Social Security taxes, which is a slightly less vague way of saying "the rich". Every time I discuss Social Security, at least one angry person will demand to know how I can so disingenuously claim the system is in need of reform, when "all we need to do is get rid of the cap on the payroll tax." All? "All we need to do" implies some sort of modest, unremarkable undertaking. In fact, as the Committee for a Responsible Federal Budget points out, this amounts to a 12.4 percent surtax on all income above $118,500. That's an enormous tax hike, which would generate exactly the same pushback you'd get if you announced, well, a 12.4 percent surtax on all income above $118,500. And as the committee notes, with admirably dry understatement, "a tax increase that large would make it politically challenging to raise more revenue from the wealthy, if it all."

By that point, the top marginal tax rate would be well above 50 percent -- closer to 60 percent in high-tax blue states. That would pretty much exhaust our fiscal capacity to tax the wealthy, meaning that any new program that liberals want to implement, from early-childhood education to high speed rail, will have to come paired with an announcement that middle-class taxes will be rising significantly to pay for it. And I haven't even mentioned the current programs we have to find money for, such as Medicare. Even assuming you could get such a large tax hike through Congress, is expanding retirement benefits really the one thing you want to spend all the money on?

Now, I recognize that many liberals are math-challenged and that all these numbers are, well, numbers, and therefore not to be trusted. But that doesn't change the reality that it won't be only the rich alone who must pay more, much more, to support the current social security payouts, much less any new benefits added by those who want to be sure that increasingly dependent citizens vote Democratic. And it won't be only the rich who suffer because the government won't have money to pay for other vital services, infrastructure, and other things that benefit the middle class and poor. But wait, aren't the the middle class and poor the very people who the Dems care so much about?

UPDATE:
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And since we're on the topic of profligate federal spending by both parties and the delusional demand by most Dems that we increase spending even more, it's worth spending a few moments considering the truly frightening federal debt picture. Ron Haskins reports:

Of all the failures of recent Congresses and Presidents, none is more important than their failure to deal with the nation's long-term debt. Although Congress tied itself in knots trying to address the problem, the growth of debt remains, in the words of the Congressional Budget Office, "unsustainable."

Debt figures tell part of the story. When the Great Recession hit, the federal debt was equal to about 40 percent of GDP. But to fight the recession, Congress enacted an $800 billion dollar stimulus bill. Stimulus spending, combined with already enacted spending and tax policy, resulted in four years of trillion dollar deficits. As a result, the debt ballooned to 78 percent of GDP in 2013, almost twice the pre-recession level. The annual deficit is now declining at a stately pace, but by 2016 it will begin increasing again, and by 2020 under CBO's alternative fiscal scenario, we will once again return to annual deficits above a trillion dollars, thereby once again greatly increasing the national debt.

The accumulation of debt should prevent federal policymakers from feeling any sense of accomplishment. In fact, CBO estimates that the debt will be well over 100 percent of GDP by 2039 under conservative assumptions about spending and revenue. When CBO incorporates its estimates of the impact of the continuing large federal deficits on the nation's economy, it estimates that the accumulated debt held by the public will reach an astounding 180 percent of GDP by 2039. One wonders if members of Congress or the President read these CBO reports.

But the Elizabeth Warrens of the world refuse to face reality and would prefer to believe the fantasy that class warfare and tax-the-rich schemes will somehow save the day. They won't. In fact, they can't. Unlike "climate change" that Warren would surely argue represents an existential threat (that is 100 years out), the level of fiscal irresponsibility coming out of Washington, DC represents a threat that is here today and getting worse tomorrow.

UPDATE (4/10/2015):
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The class warriors on the Democratic side of the aisle keep telling us that income inequality is the true villain and that the "rich" don't pay their fair share. Really?

Here's a breakdown from The Wall Street Journal on who is paying for the nation's needs based on income tax payments:

So, the top 20 percent of wage earners pay 84 percent of all income taxes collected. That seems like a fair share to me, but I suppose we could ask the top 20 percent to pay all income taxes and allow the other 80 percent to vote themselves increases in government entitlements on a yearly basis. After all, it won't cost them a penny.  Yeah, that'll work. After all, just look at the debt and fiscal shortfall numbers ... oh wait ... I forgot, the numbers don't matter. Do they?